The haunting sound of an Islamic call to prayer echoes around you as you walk through the Iraqi town, litter blowing across the street and market traders standing next to their stalls. Glance down and your rifle comes into view, look to the right and you spot the Black Hawk helicopter.

Suddenly a man runs out from a building to your left. You stare into angry eyes above the shemagh covering his face and down the barrel of his AK47 as he begins to fire. Spin right and another insurgent appears on the roof of a building. His rocket-propelled grenade whooshes past your ear and explodes just feet away. Immediately another bang alerts you to a car that has burst into flames up the street. Speed towards it amid screaming and you are now standing over a man whose right leg has suffered a bloody amputation.

The scene is horrific but it is also virtual reality – a hi-tech room recreating combat images, which it is hoped will one day help traumatised soldiers to relive the moment of their greatest horror in a controlled, medical environment so they can learn to come to terms with the mental injury left behind. Its creators, Professor Paul Sharkey and Ronan Jamieson, are in discussions with Combat Stress – the country's leading charity for veterans with post-traumatic stress disorder (PTSD) – to see if this is something they may be able to use as part of their treatment.

With this new programme soldiers will be able to virtually walk back into the "combat zone" – a room broadcasting simulated scenes on three walls and the floor in 3D, mimicking the sights, sounds, smells and even vibrations of battle.

"The beauty is that it is safe and controlled, so you are there but you don't get as stressed as you would be if it was real," said Mr Jamieson.

The scientists from the Cybernetics department of the University of Reading have spent the past three years working on this programme, which is based on a US version. The Americans, who acknowledge a higher rate of PTSD in survivors of Afghanistan and Iraq than the British government, have several virtual reality trials ongoing at veterans' hospitals and say that it can be effective with a tech-savvy generation of young soldiers who have grown up on computer games. The British team has been working alongside colleagues from the University of Southern California, who have developed a "Virtual Iraq" programme that includes everything from the explosion of roadside bombs to the smell of gunpowder.

Working on the theory that a headset – which may remind the soldier of a helmet or night-vision goggles – could increase the trauma, the British Cave Automatic Virtual Environment (CAVE) system, ReaCTor, immerses users in a small room with audio and high-resolution video from a computer image generator projected from behind the walls.

"They experience the sights, sounds, smells and vibrations of their original experience. It is a way of overcoming a natural difficulty in using their own imagination during the therapeutic process," said Professor Sharkey.

Attempts to interest the Ministry of Defence, he said, have been in vain but he is currently in discussions with Combat Stress in the hope of testing the effectiveness of the system with their clinicians and veterans. Robert Marsh of Combat Stress said: "We welcome any advance in the treatment of psychological injury in the veteran population. We have had preliminary discussions with the University of Reading and are looking forward to seeing some of their outcome data."

The Ministry of Defence said: "We are aware of the use of 'virtual reality' environments and have been monitoring developments over a number of years. Before we would adopt such a system, we would need medical endorsement from the National Institute for Health and Clinical Excellence."